Does selling your old car count as income and do you have to pay income tax on that?

Answer 1

Whether the money received from the sale of your car is taxable or not depends on if the car was for business vs. personal use.

If the car has been used in a business and there was a tax deduction taken for depreciation, you must report the recapture of depreciation from the sale on Form 4797 and calculate any gain or loss. A gain would be taxable; a loss may be deductible against your other income.

Losses on the sale of personal property are not deductible, but gains from such sales are taxable. The gain is calculated by subtracting the amount of the sale minus the purchase price. It is rare to have a gain on the sale of a personal vehicle because no depreciation deduction can ever be taken for personal use items. Therefore, the cost/basis of the vehicle remains the same (what you originally paid for the car). For the vast majority of cars, the selling price is less than what the owner paid for it. However, classic and collector cars have been known to yield gains for their owners. If you happened to be fortunate enough to buy a car which became a classic and increased in value, you would have a reportable capital gain. For these types of gains, the amount of tax owed depends on how long the car was owned. If owned for a year or longer, the long-term capital gain treatment is applied and the taxes are less than if the car was owned for less than a year.